Free Trade Zones: Taking Advantage of the Incentives

I trust this week has been good on your side. Are you preparing for the weekend already or are you still struggling to get all your tasks in check? Maybe you have not even done much, because you think you have the whole time to yourself. Here is a quick reminder, time waits for nobody, so do what you got to do!  For me, the week as been good, with exception of the incessant traffic I have had to deal with to and from work. I also noticed recently that I have lost some weight! Well, I have been looking for a way to avoid the back and forth running on the tread mill and I guess I have one now. Welcome to Tax Thursday!

A Free Trade Zone is any area in a country where goods may be imported/exported without any barrier imposed by the host’s customs authorities. It could also refer to a particularly chosen area within a country where regular trade barriers like quotas and tariffs are removed and the administrative restricted access is lessened to attract new businesses and foreign investments. In the same vein, a Free Trade Zone could be defined as a labour-intensive manufacturing or assembling hub, which consists of the import of raw materials and/or components for manufacturing or assembly of finished or semi-finished products meant for export to different countries. In this regard, only when the goods are moved to consumer (customs territory) within the country in which the zone is located do they become subject to the predominant customs duties. Free Trade Zones are usually developed in places that are geographically beneficial for trade. Places close to international airports, seaports etc are preferred for developing Free Trade Zones.

However, there is a negative perception of the Free Trade Zones in Nigeria and people always forget the many benefits that come with it. There has been provision of general physical and fiscal incentives aimed at making businesses in the free trade zones competitive. The physical incentives are provided to address the national infrastructural inadequacies. These facilities include water, electricity, security, and telecommunication which could make up to 25% of an enterprise initial capital outlay. The fiscal incentives include:

  1. 100% repatriation of capital projects and dividends
  2. Waiver of all expatriate quotas and Free repatriation of foreign capital invested in the Free Trade Zones at any time with capital appreciation on the investment. 
  3. Rent-free land at construction stage within the Zone. 
  4. Free remittances of profits and dividends earned in the Free Trade Zones. 
  5. 100% foreign ownership of all manner of business is allowed in the Free Trade Zones.
  6. Duty free, tax free import of raw materials and components for goods destined for re-export (e.g. capital)
  7. Free engagement of expatriate managers and other personnel in the Free Trade Zones. 
  8. Free trade relationship between the investors and their personnel as no strike or lockout is permitted for a period of ten years following the commencement operations in the Free Trade Zones. 
  9. Also, all disputes arising within the Zone between the government and an enterprise are resolved by the Authority in an expeditious and equitable manner.
  10. As a means of encouraging industrial technology, companies and other organizations that engage in Research and Development activities for commercialization enjoy 20% investment tax credit on their qualifying expenditure.
  11. Dividends distributed by Unit in Nigeria are free of tax and no withholding tax is deducted therefrom since such incomes have already suffered tax in the first instance.
  12. All companies engaged wholly in fabrication of tools, spare parts and simple machinery for local consumption and export are to enjoy 25% investment tax credit on their qualifying capital expenditure while any taxpayer who purchases locally manufactured plants and machinery are similarly entitled to 15% investment tax credit on such fixed assets bought for use.
  13. Preferential tariffs for made-in-Nigeria goods by some economic blocks like the European Union (EU). 
  14. Legal Guarantees and protection of foreign investments, both in the Free Trade Zones and within Nigeria, from nationalisation, expropriation and mandatory buy by the Nigerian government as confirm in the Nigeria Investment Promotion Act.
  15. Enterprises in the Zone can sell up to 100% of their manufactured item, with up to 35% value addition, in the domestic economy, regardless of whether the item is banned or prohibited. 
  16. Complete exemption from federal, state and local governments‟ taxes, levies, duties and foreign exchange regulations 
  17. One-Stop approvals for all permits, operating licenses, and incorporation papers 

So many benefits have been enumerated and I believe this should overshadow all your negative perception of the Free Trade Zones.

For further enquires on this bulletin or any other tax-related issues, you can contact 0700TAXAIDE.

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